When Crude Went Negative
Don’t tell anyone what happened lads
Do you remember in April 2020, Crude Oil went negative.
It was a perfect storm of oil being still produced and immediate demand dropping right off a cliff due to the pandemic.
So, you basically had this weird situation where the front-month oil price went into negative territory.
Oil producers were effectively willing to pay you to take it away and store it. They didn’t have the capacity to store it and the pumps were still chugging.
Here’s the chart.
Anyway, whilst huge companies, governments, and funds were watching this play out, wondering what the heck was going to happen, a group of lads from London, Essex were hard at work watching the order book.
Seasoned commodity traders working from home because of the pandemic, these boys had been waiting for this opportunity for years and walked away with $700m between them.
Wait, what?
How?
Well what actually happened is still quite murky, and it looks like there’s a court case ongoing, but here’s how I interpret the play. (I can’t be 100% and I’ve read between the lines a bit, but I think it’s close)
Are you sitting comfortably?
So these 12 guys were pro traders, well-capitalised, and knew the game.
They saw this whole thing starting to play out and crafted a trade idea.
The lads planned to short crude into weakness and cover the positions using what’s called Trading at Settlement contracts. (TAS order)
These contracts effectively give you the ability to get filled at the official closing price of Crude Oil. It gives traders some predictability and eliminates a lot of the intraday volatility.
Perfect, if you’re say a producer, looking to hedge.
But they are also a perfect way to close a big short position you plan to build intraday…
And that’s exactly what happened.
These traders spotted this perfect storm, a fundamental sh1t show, a total bid collapse, and one hell of an opportunity.
And so there’s only one thing to do under those circumstances.
Grab your b*lls and short huge size.
500 lots here, 100 lots there.
It’s alleged these guys were selling 153 lots every single minute in the half-hour leading up to expiry.
That was pretty much 30% of the trading volume.
Every minute. 150 contracts hitting the bid…
So what happened?
Well, Oil collapsed and went negative for the first time in history.
The P&L?
$703,814,390 profit for the traders.
Seven hundred million dollars… in a few hours.
Wow.
A court case alleges that they were acting in collusion and manipulating the market.
But the Essex boys say they were just good traders taking the “obvious trade” at the time.
Who knows…
It turns out they had a WhatsApp group called: Legends XXX which detailed some messages they sent back and forth to each other at the time.
Once the trade was closed and profit banked, one of the traders sent this final text…
“We pushed each other so hard for years for this one moment… And we f[******] blitzed it boys.”
Blitzed it they did…
Here’s a cool video explaining what happened that day: